A national mandate to establish Section 125 plans would result in a significant cost impact regardless of the impact on the uninsured, because roughly 30 percent of workers who now have ESI are in a firm that has not established a section 125 plan (The Lewin Group, 2008). The introduction of such a plan would result in decreased federal income and payroll taxes, as well as reduced state revenues in states that base their taxable income on federal adjusted gross income. The magnitude of the revenue loss would depend on the extent to which the creation of new Section 125 plans encouraged individuals to purchase coverage through employer withholdings.
A national mandate to establish Section 125 plans for employers with 10 or more workers would have a net federal cost of $26.1 billion dollars and a net state cost of $2 billion, for a total program cost of $28.1 billion (Figure 4). These program costs are the result of lost revenue in the form of income and payroll taxes, due to an increase in workers paying for health coverage with pre-tax dollars.
Like the subsidy programs, there is a reduction in previously uncompensated care costs due to a decrease in the number of uninsured. The reduction in uncompensated care costs under this scenario is $1.4 billion.
A national mandate to establish Section 125 plans for all employers would have a net federal cost of $32.2 billion and a net state cost of $2.5 billion dollars, for a total program cost of $34.7 billion (Figure 4). Because even more individuals participate in the Section 125 plans when all employers are required to offer them (as opposed to only firms with 10 or more workers), the revenue losses are even greater under this scenario. However, because the number of uninsured is further decreased, the reduction in uncompensated care is greater, totaling $2.3 billion.